Did you manage to get this Christmas’ ‘must have’ item? We refer of course to the black – as opposed to green, gold or ice-white – Christmas tree. Coming out of nowhere, the craze for the artificial decoration sent both shoppers and retailers on desperate searches across the land. High street department store chain, John Lewis, reported it was on the brink of selling out its stock at the start of November.
"Many organisations are looking to management systems which are helping them optimise the physical throughput in their warehouses"
Nigel Montgomery, European research head, AMR
Welcome to the 21st century and the modern supply chain. It is all about balancing as lean as possible inventory with the flexibility to respond to customer demands in a flash. “Supply chain is not ‘cool’ again,” says Nigel Montgomery, European research head for analyst firm AMR, referring to the dot-com bubble period when companies like i2 and Manugistics could do no wrong by their shareholders, if no one else. The future seemed definitely e-marketplace and extranet-shaped.
“What’s happening instead is that firms that want to seriously take on things they want to, like expanding to China or dealing with compliance, have woken up to the fact that they urgently need to reduce costs in their supply networks,” says Montgomery.
“As a result many organisations are using warehouse management systems, which help them optimise the physical throughput in their warehouses. This seems to be the only way to simultaneously take advantage of globalisation and extended supply pipelines, take more cost out of the operation, and meet increasingly specific customer demand. “In an ideal world you wouldn’t have a warehouse at all,” says Montgomery. “There’s dead inventory sitting around. But in the just-in-time world of today you often need to assemble the items to meet customised needs at the last minute, so warehouse systems are suddenly getting a lot of attention.”
It may be too early to say if the Christmas shopping season just closed was enough to stave off a retail sector slump – a survey of UK retailers by the CBI in December showed 51 per cent reporting lower sales year-on-year. But one company that was bound to have made a strenuous effort to beef up its supply chain to cope with demand is Argos Retail Group, the high street goods arm of retail giant GUS. “We were the biggest 2004 shopping site this time last year,” points out Stephanie Canavan, business systems manager in the organisation’s direct home delivery arm.
She explains the dramatic growth – pre-internet – that she has had to cope with. She says: “We were set up in 1973 and our first catalogue had 4,700 items spread over 20 pages; the latest I know of has 17,700 over 1,738.”
Argos claims independent data positions it as the number one supplier in the UK market for a range of purchases such as toys, home office furniture, landline telephones and small household appliances. It is number two for personal care products after Boots.
The company moved into home delivery in 1990, an operation enjoying 25-35 per cent growth in the last five years alone, with an infrastructure growth to support the business of new delivery centres opening in 1997, 2003 and 2005 respectively. “The problem was that we had outgrown the original JBA system that was now 15 years old but also customised to the point where it was really all our code,” she says. “We also physically had more orders to place and needed shorter pick cycles to do that, or our annual 4.2m delivery rate might suffer.”
The company upgraded its software to the Manhattan Associates product, a move which Canavan believes has “taken a lot of paperwork out of the warehouse operation, improved efficiency, given us more rapid visibility of stock levels both on and off the system and also given us a long term platform for future growth”.
A key benefit is that as this is a customer delivery route, fewer mis-picks means less grief for the drivers. The new system hit 50 per cent of planned capacity in October and is to be rolled out to all three distribution centres over the course of the next few months. She adds: “It might be too early to single out specific benefits yet but I don’t see anybody looking glum.”
"We have now got the capacity for boxed and hanging items safe for the next five years"
Gary Beveridge, project manager, Matalan
It would be hard to think of a more different kind of goods stocked in a warehouse from the Argos universe than the items moved around the innards of £160m turnover Games Workshop, but they are undeniably just as suitable for supply chain optimisation. Enter the sword and sorcery realm of Warhammer, one of the mainstays of the world’s leading tabletop fantasy wargames company in the world – “Which is because we are the only tabletop fantasy wargames company in the world,” jokes systems manager Stuart Platt.
“We design, manufacture and sell a wide range of fantasy figures, exporting some 70 per cent abroad,” he says. The company uses logistics solutions from UPS and TNT to meet demand for the current 899,679 products in the catalogues, almost certainly a no longer accurate figure as the firm releases 15-20 new items a month.
For the folks doing the stock picks for all these colourful characters in the warehouse, the biggest problem was working with a system past its sell-by date. The software had, in Platt’s words, “been barnacled” beyond recognition. The Games Workshop decided to upgrade to the latest generation of warehouse management functionality, a move completed in the course of just over a year, going live last July.
The result: “Our previous maximum number of stock picks to date over three shifts was 12,000 – we’ve already seen 18,000 over two,” he enthuses.
Yet another UK company that has felt it necessary to beef up its warehousing solution is fashion and homeware supplier Matalan. In one of those not many people know this moments, the firm claims it sells 12 pairs of socks every minute.
Gary Beveridge was project manager for the firm’s 2002-03 technology upgrade, noting that the move has streamlined operations to such an extent it has been able to close one of its distribution centres, reduced outbound transportation costs and cut 20 per cent of cost out of delivery, he says.
That is impressive, considering it needs to service 190 UK stores adding up to some five million square feet of retail space. The firm needs to pipe 70 per cent of its stock items from abroad but ship them quickly and evenly across the entire UK. “We have now got the capacity for both boxed and hanging items safe for the next five years,” he thinks.
Supply chain IT is split between the main ERP vendors like SAP (market leader) Oracle-owned JD Edwards, Oracle and a host of specialised players. In warehouse management the significant players include Manhattan Associates, Red Prairie and HighJump Software.
On the user side, AMR has identified Dell, IBM and Proctor & Gamble as firms with the best performing supply chains, though Nokia and Tesco are also in the top ten. The research also suggests those firms efficient at supply chain management carry 15 per cent less inventory and are 60 per cent “faster to market”.
Getting the supply chain wrong can cause big headaches. In February last year problems installing a new integrated supply chain based on SAP led MFI to reporting inventory shortages and incomplete orders being sent out to customers. The retail part of the group dipped to a £46m loss from a £47.1m profit as a result and the company’s FD and COO both lost their jobs.
Meanwhile Thorntons’ supply chain has just passed its usual severe annual test; the company makes 40 per cent of all its £190m annual sales in the 10 weeks prior to Christmas, with its main 140,000 square foot distribution centre in Derbyshire charged with getting all its own-brand confectionery and sweets to all 370 shops and 216 franchises.
The company outsourced its IT operation to EDS in 2001 and the latter played a major role in a recent supply chain refresh. A six-month project to upgrade warehouse systems – in some cases replacing paper-based processes that had been in situ for 20 years – went live in July. The upgrade is expected to save the firm at least £100,000 per annum, according to its head of warehousing and distribution Greg Garside: “We have identified the bottlenecks.”
The new warehouse systems exploit radio frequency technology and the wireless environment provid es the 70 staff at the distribution centre with what a spokesperson describes as “a new beginning”. Performance is said to be up, staff and working operations are held to be more efficient, and data sharing by other applications is the next opportunity, thinks the company, as it feeds information from the warehouse system back to its core manufacturing, ordering and financial processing systems.
Warehousing may not seem the sexiest of applications for technology – but it turns out to be an increasingly important one.